Festival season has arrived and Diwali is one of the biggest festivals in India. These are the times when people give gifts, sweets to their friends, relatives, employees, family, and clients.
Our question is that
Whether the input tax credit would be available for the purchase of Diwali gifts?
Here we discuss the 2 scenarios where ITC involved in the case of Diwali gifts.
- First: ITC on the gifts distributed to clients, customers
- Second: ITC on the Food and beverages like sweets distributed to employees on Diwali
Now we discuss both scenarios one by one.
1. ITC on gifts distributed to clients, customers
Section 16 (1) of CGST ACT: Every taxpayer is entitled to take credit for input tax charged on the supply of goods or services which are used in the course or furtherance of his business.
The course of business means day to day routine transactions without which business cannot be run, like raw material, capital goods, etc.
Furtherance of business which means the act of advancement or promotion of business for its sustained growth and profitability.
Diwali gifts which are given to a person related to business like clients, employees, workers, customers for good business relations for the advancement of the business. Diwali gifts will fall under the furtherance of business.
Diwali gifts shall be treated as a supply of goods for the supplier who has sold such gifts and tax should be charged by them.
Therefore, Diwali gifts fulfill the condition of Section 16 and ITC can be claimed.
But section 17 of the CGST Act has an overriding effect over section 16 (1) and as per section 17 (5) (h) input tax credit not available in case of goods given as gifts or free samples.
Hence, ITC on gifts distributed to clients or customers is not available to taxpayers. Therefore, a suitable clarification should be issued by the department at the earliest on the input tax credit on gifts distributed to clients on Diwali.
2. ITC on the Food and beverages like sweets distributed to employees on Diwali?
Section 17 of the CGST Act deals with the circumstances where input tax credit not available to taxpayers.
Section 17(5) (b) (i): Tax credit shall not be available to a registered person on foods and beverages purchased for employees and workers.
Therefore, ITC on foods and beverages not available for taxpayers.
Whether the gifts given to employees attract GST?
Salary payable to employees shall not attract GST as it is not treated as Supply.
As per the proviso of Paragraph 2 of Schedule I of CGST Act, gifts not exceeding Rs. 50,000/- in a financial year by an employer to an employee shall not be treated as supply of goods or services or both.
However, gifts of more than Rs. 50,000/- made without consideration are subject to GST.
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